Flaws in U.S. Trade Laws Discourage Trade and Foster Protectionism

October 1, 2012

While the United States touts its free trade policies, there are serious flaws in the nation's laws that discourage trade and foster protectionism. More specifically, Section 337 of the Tariff Act of 1930 allows the International Trade Commission (ITC) to exclude products for import that would create "unfair methods of competition," says K. William Watson, a trade policy analyst at the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies.

In 1974, Congress gave the newly created ITC formal adjudication procedures that resemble a court trial.

This had led to many claims being filed through the ITC.

About 90 percent of cases filed at the ITC have been patent related.

Many companies opt to take their patent infringement claims to the ITC because it is quick and provides a powerful remedy -- complete exclusion of the domestic markets. Unlike the federal court system, which can take about two years to settle a dispute, the ITC investigations and ruling take only about 12 months to 16 months to complete. On top of that, the remedies available through the ITC are greater than those found anywhere else.

The harsh solutions provided by Section 337 discourage innovation because foreign competitors can simply be excluded from the market. Furthermore, it hurts the economy because U.S.-based companies that manufacture goods abroad are subject to having their products excluded by the ITC.

Proponents of Section 337 argue that there needs to exist strong protections against patent infringement, otherwise industries would have no incentive to innovate. However, 65 percent of Section 337 cases were accompanied by parallel cases in the federal courts, meaning the courts have jurisdiction over the defendant. Moreover, the courts can provide remedies to the plaintiffs that don't require complete exclusion from the market.

Section 337 should be removed before its ambiguous wording is used to justify an increase in more patent, as well as non-patent, claims. A series of proposals have been offered to change or replace Section 337:

First, the ITC could give injunctive relief and limit the availability of Section 337 for non-practicing entities.

Second, change Section 337 to only allow domestic manufacturers to bring claims before the ITC.

Finally, a proposal to limit the jurisdiction of the ITC to cases where the district court is unable to exercise personal jurisdiction over the infringer.